July 04, 2013 08:12 PM UTC

The Colorado Legislature's Breach of State Contracts in 2010 "Shocks the Conscience."

• 7 Comments
• by: PolDancer

PROFESSOR MONAHAN RELEASES NEW PAPER, "Understanding the Legal Limits on Public Pension Reform," May, 2013.

Professor Amy Monahan is the preeminent legal scholar in the United States on public pension contracts.  "Amy Monahan is a professor and the Solly Robbins Distinguished Research Fellow at the University of Minnesota Law School."

In 2010, a majority of the members of the Colorado General Assembly voted to unilaterally change the terms of the statutory Colorado PERA pension contract, taking hundreds of thousands of dollars of total lifetime pension benefits due Colorado PERA retirees under their "fully-vested" PERA pension contracts.  That year, a majority of the members of the Colorado Legislature were persuaded by lobbyists representing PERA employers (who actually owe the accumulated PERA pension debt) to eliminate 42 percent of COLA benefits PERA retirees are to receive under their Colorado PERA pension contracts.  In 2010, lobbyists persuaded a majority of the members of the Colorado Legislature to push 90 percent of the costs of their PERA "reform" bill onto a small group of the state's elderly.

Colorado is a quite wealthy state.  Colorado can afford to pay its debts.  It is simply the case that many politicians and taxpayers in Colorado do not want to pay the state's debts.  Political careers are not built on reminding voters that they must meet the state's accumulated debt obligations.  Many Colorado politicians prefer breaking state contracts, and manufacturing legal contrivances as a means to escape legitimate Colorado public sector debts.  They prefer taking money from Colorado PERA retirees who gave their lives in public service in order to avoid raising a fair and reasonable level of revenues to pay for public services already consumed (deferred PERA pension compensation).  The Colorado legislative process is controlled by lobbyists to the extent that a majority of state legislators can be persuaded to support unconstitutional and immoral legislation.  The bill that broke Colorado PERA retiree pension contracts in 2010 (SB10-001) is proof that lobbyists at the Colorado Legislature have the ability to persuade the members to violate their oaths of office.  Only the Judicial Branch of Colorado government has the power to preserve justice in our state.

The outright, brazen, unabashed breach of Colorado government contractual obligations in 2010 represents one of the most immoral and egregious acts in the history of the Colorado General Assembly, truly "shocking the conscience."  Colorado PERA retirees ask only that their legal rights under the Colorado Constitution be upheld.

Decent Coloradans who support the rule of law are appalled by the Colorado General Assembly's breach of public pension contracts in 2010.  Decent Coloradans look at Colorado PERA's public relations, political, and legal campaigns to abrogate state contracts and rightly feel disgust.  Thus, it is not surprising to find the target of SB10-001, Colorado PERA retirees, suing the State of Colorado and demanding restoration of their rights under the Colorado and U.S. constitutions.

Over the last few years, Colorado PERA retirees have gathered evidence revealing the rotten foundation upon which SB10-001 rests.  Colorado PERA retirees have refuted the reams of PERA propaganda that were used to take contracted retiree pension benefits in 2010.  Colorado PERA retirees have studied germane Colorado public pension case law and legal theory.  PERA retirees have spent many hours with the following legal analyses of Professor Monahan:

“Statutes as Contracts? The ‘California Rule’ and Its Impact on Public Pension Reform,” (Iowa Law Review article.)

http://www.law.umn.edu/facultyprofiles/monahana.html

(In this paper, Professor Monahan notes that the Colorado Supreme Court [and 12 other states] have adopted the “California Rule” as controlling in the establishment of contractual rights to public pension benefits.)

"Public Pension Reform: The Legal Framework."

Professor Monahan: “This Article has argued that pension benefits that have already been earned through services rendered to the state should be protected against impairment, but that it is hard to find legal justification for protecting the rate of future benefit accruals.”

http://www.law.umn.edu/facultyprofiles/monahana.html)

Recently, (in May of 2013) Professor Monahan published yet another public pension legal analysis:

"Understanding the Legal Limits on Public Pension Reform."

https://www.dropbox.com/s/cvzed3lmwt8t8v2/Understanding%20Pension%20Reform.pdf

(I doubt that any members of the Colorado Legislature read Monahan's work prior to voting to break Colorado PERA retiree pension contracts in 2010.)

Colorado PERA-affiliated employers and Colorado PERA retirees are parties to a pension contract that provides a total defined benefit composed of a "base benefit" and an annual pension "escalator."  Under the terms of the Colorado PERA pension contract, at retirement, annuitants receive a significant percentage of their final salaries and an annual adjustment that happens to match Colorado PERA's current, long-term inflation assumption.  Hypothetically, if the Colorado PERA pension contract included terms paying a relatively low initial pension "base benefit" at retirement accompanied by a high fixed, "automatic" COLA escalator, then 90 percent of the total PERA pension benefit would derive from the COLA provision.  Under such circumstances, would Colorado PERA's attorneys argue that Colorado governments should be free to ignore their contractual obligations and take 90 percent of the value of a Colorado PERA retiree's contracted retirement benefit by unilaterally slashing the COLA?

No lawyer could make this argument with a straight face . . . that the State of Colorado should have the right to retroactively take 90 percent of a retired worker's pension after they have completed 30 years of work for the state and made 30 years of uninterrupted PERA pension contributions, performing their obligations fully under their PERA pension contracts.  If the State of Colorado were allowed to take such an action, the PERA pension contract would be meaningless, and the Colorado Constitution would be meaningless.

So, why are Colorado PERA's lawyers arguing that the State of Colorado should have the right to claw back 30 percent, or 40 percent of a retired worker's total contracted pension benefit after it has been earned?  Why are Colorado PERA's lawyers arguing that the State of Colorado should be empowered to unilaterally slash 42 percent of a PERA retiree's contracted inflation protection?

Provision of an "automatic" public pension COLA in a statutory pension contract benefits members of the pension financially at retirement, just as they benefit financially from statutory terms providing the pension "base benefit."  A public pension automatic COLA is simply a means of delivering the total, contracted public pension benefit to a worker at retirement.

Few attorneys for private insurance companies would bother arguing in court that their employer, the insurance company, should be able to ignore its contractual obligation to pay a contracted COLA in an annuity that the insurance company had sold.  Do we see attorneys for private insurance companies arguing in court that, since the insurance company has sold many annuities in the past, and entered into many annuity contracts with COLA provisions, that the insurance company has the right to unilaterally reduce the contracted COLA rate in all contracts to which it is a party?  Apparently, only attorneys representing public sector entities are so brazen as to suggest that courts sanction such self-serving, ridiculous contrivances.  (I imagine that many of them can scarcely believe that they spent years in law school only to be compelled, as a condition of employment, to make preposterous and misleading arguments before a court of law.)

Below, I provide a few excerpts from Professor Monahan's new paper, "Understanding the Legal Limits on Public Pension Reform," and my comments:

Professor Monahan:

"In place of the 'gratuity' approach, courts have, for the most part, adopted one of two legal theories to protect public pension benefits: the property interest approach or the contract approach."

(My comment, Marcucci [of the National Association of Public Pension Attorneys]: “Does your jurisdiction have an anti-gratuity clause in its constitution?  If so, then almost by default there needs to be a contract component to pension benefits.”  The Colorado Constitution's "anti-gratuity" clause: Article 5, Section 34 of the Colorado Constitution prohibits the Colorado General Assembly from using public funds “for benevolent purposes to any person.”  If the PERA COLA is a gratuity, it is unconstitutional.)

Professor Monahan:

"This policy brief will provide an overview of the various approaches that states take to protect public employee pensions, discussing first the protections that apply to employees who have not yet retired and then those that apply to already-retired employees.  It concludes with a look at recent litigation in several states challenging public pension plan changes."

Professor Monahan:

"The ability of state legislatures to make changes to the pension benefits of current employees varies dramatically by state.  In some states, changes are relatively unrestricted, while in other states no detrimental changes can be made to either past or future accruals unless such changes are the least drastic means of achieving an important policy goal."

(My comment: On May 16, 2012, the Colorado General Assembly enacted a bill that represents one of dozens of available "less drastic" public pension reforms.  The General Assembly enacted SB12-149, reforming certain Colorado county [administrative arms of the state] public pension systems and honoring the accrued public pension benefits of public sector workers who are members of those pension systems.  The General Assembly adopted this PROSPECTIVE legislation two years after having retroactively taken accrued public pension benefits from Colorado PERA retirees.)

Professor Monahan:

"As a general rule, changes that are purely prospective (changes that affect not what an employee has already earned but solely what he will earn through future service) invite less judicial scrutiny than changes that affect an employee’s already-earned and vested benefits because prospective changes are considered less substantial impairments than changes to accrued benefits."

Professor Monahan:

"Property Approach.  To the extent that an employee’s rights in a public pension plan are considered property, those rights are protected under the 5th and 14th Amendments to the US Constitution from deprivation without due process of law."

(My comment: Both the U.S. and Colorado constitutions make public pension benefits a constitutionally protected property right.  Due process requires the right to present evidence.  Since, to date, Colorado courts have not permitted the case, Justus v. State, to go before a jury, Colorado PERA retirees have not been afforded this constitutional right to due process.)

Professor Monahan:

"Contract Approach.  In many states, an employee’s right to public pension benefits is considered contractual, and therefore is protected against substantial impairment under both state and federal constitutions.  This protection is provided by the Contract Clause of the United States Constitution, which states, 'No State shall . . . pass any . . . Law impairing the Obligation of Contracts.'  Most state constitutions contain substantially similar language.  As a result, once a court finds an employee’s right to her public retirement benefits to be contractual, it is generally unconstitutional for a state to take any action that substantially impairs the employee’s benefits."

(My comment: The Ritter Administration on substantial impairment of PERA retiree pension contracts [in a letter to the federal pension regulator GASB]):

“In Colorado, a class action lawsuit has been filed challenging recently passed statutory reductions in annual COLA increases which for an average member would result in $165,000 of reduced benefit over a 20 year period.”

http://www.gasb.org/cs/ContentServer?site=GASB&c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocumentPage&cid=1176157387791)

Professor Monahan:

"In the pension context, courts typically find any decrease in the amount of retirement benefits to be a substantial impairment."

Professor Monahan:

"In some states, the contract is considered to be formed on the employee’s first day of employment, thereby protecting the employee against any detrimental changes in her pension plan benefits from the moment she begins work.  At the other end of the spectrum are states that find a contract to exist only once the employee has retired and begun receiving benefits under the plan."

Professor Monahan:

"Somewhere in the middle are states that find a contract to exist once an employee has satisfied the minimum service requirements to receive a pension."

Professor Monahan:

"In these states, courts are left to infer whether the legislature intended to create a contract when it passed laws granting public employees’ retirement benefits.  They do so by examining the facts and circumstances of the case and often conclude that by providing retirement benefits that an employee can earn through performing services, the state has made a unilateral offer that the employee accepts through service, thereby creating a contract under traditional contract theory principles.  Even this approach is relatively uncontroversial when it is used to protect benefits that an employee has already earned."

(My comment: Ritter Administration Letter to GASB [federal pension regulator] on contractual public pension obligations:

“COSC agrees that an obligation exists since the government entity has entered into a duty, contract, or promise to provide compensation in the form of benefit payments during retirement; and furthermore, we agree that this obligation is a present obligation to the extent that the benefits owed have already been earned through past services, and are legally enforceable once vesting provisions have been met.”

“Because the exchange transaction which gave rise to this present obligation was made between the employer and the employee who is also a member of the pension plan, a reduction in member benefits (such as COLAs), or an increase in required employee contributions both serve to change the net economic benefit to the employee that was entered into at the time of the exchange transaction agreement.”

“The criteria suggested as the basis for differentiating these COLAs (automatic) versus ad-hoc COLAs is the statutes that exist as of the date of the employer’s financial statements.”

“The essential difference between an automatic COLA and an ad hoc COLA is the legal requirement; with this core difference there is no way for the two not to be substantively different. The legal difference in this instance is critical to the determination of whether the government is unable to avoid the surrender of resources to meet the obligation.”

http://www.gasb.org/cs/ContentServer?site=GASB&c=Document_C&pagename=GASB%2FDocument_C%2FGASBDocumentPage&cid=1176157387791)

Professor Monahan:

"An impairment occurs if the action alters the contractual relationship between the parties and is substantial 'where the right abridged was one that induced the parties to contract in the first place' or where the impaired right was one on which there had been reasonable reliance."

(My comment: March 1, 2012, House Finance Committee, Representative DelGrosso: "The problem that we ran into with Senate Bill 1 . . . is that when they start adjusting things like the COLA . . . that's where it opens us up to lawsuits, because people are like 'hey, I'm five years away from retirement, I'm ten years away from retirement, I'm one year away, I am retired,' and then we go and make changes that's where we have lawsuits, because hey this a violating a contract . . . ")

Professor Monahan:

"Where a state is seeking to impair a contract to which it is a party, a reviewing court does not completely defer to the state legislature’s determination of what is reasonable or necessary under the circumstances."

(My comment: United States Supreme Court in U.S. Trust, “A governmental entity can always find a use for extra money, especially when taxes do not have to be raised.  If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . Thus, a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.")

Professor Monahan:

"For an action to be considered necessary, (1) no other less drastic modification could have been implemented at the time of the challenged change, and (2) the state could not have achieved its goals without the modification."

(My comment: February 2011, Colorado PERA General Counsel Greg Smith writes in Government Finance Review: "Adjusting public pension benefits in Colorado: a fiduciary process": "Necessity is judged on two levels: 1) whether a less drastic modification could have been implemented; and 2) whether, even with modification, the state could have achieved its stated goals. To determine whether the changes were reasonable, the changes MUST BE THE MINIMUM CHANGES NECESSARY to solve the economic problems of the plan. (See United States Trust Co. v. New Jersey, 431 U.S. 1, 1977.)"

(The next year, [June 26, 2012] Colorado PERA’s independent actuary, Cavanaugh MacDonald Consulting, LLC, reports in the 2011 Colorado PERA CAFR: “It should be noted that the changes made to the PERA structure as a result of SB10-001 have as a goal 100% funding of the  accrued liability within 30 years for all divisions.  The results of the December 31, 2011, valuations combined with financial projections of all divisions, indicate that this goal, WHICH IS A MUCH STRONGER POSITION THAN REQUIRED TO MEET CURRENT GASB STANDARDS, is still achievable with the exception of the Judicial Division.”

http://www.leg.state.co.us/OSA/coauditor1.nsf/All/641A0AB5B97D073C87257A3A0072FEA3/$FILE/2067-12%20CAFR_6-26-12.pdf.)

The Colorado General Assembly's incorporation of a 100 percent funding threshold into the Colorado PERA statutory pension contract was much stronger than necessary, not the "minimum change necessary," thus SB10-001 does not meet the "necessity" standard.  Dozens of other "less drastic" pension reform options were available to the General Assembly in 2010.)

Professor Monahan:

"Post-retirement changes to public pension benefits.  While distinct differences exist among the states with respect to the legal protections they grant to public employee pensions preretirement, changes to a participant’s benefits once she has retired will be extremely difficult to make in any state.  The difference between the legal approach to pre- versus postretirement changes is that once a participant is retired, she has by definition fulfilled her side of any bargain that has been made.  In contract theory terms, the participant has accepted the offer of pension benefits through performance.  The protection given to pensions in this context is analogous to the legal protections given with respect to promised salary."

(My comment: Colorado PERA in a written document, to the Colorado General Assembly’s Joint Budget Committee on December 16, 2009 states that the PERA COLA benefit IS a contractual obligation of PERA, “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf)

Professor Monahan:

"In cases where COLAs are being reduced before retirement, they would typically be analyzed under either the property or contract approach outlined here, generally on the same terms as any other type of preretirement change.  However, COLA reductions that affect already-retired participants are typically analyzed under a contract analysis because the participant has already satisfied all of the conditions necessary to receive a benefit."

Professor Monahan on Colorado's Public Pension Lawsuit, Justus v. State:

"In Colorado, retirees challenged actions by the state legislature that reduced the COLA retirees were eligible to receive.  The plaintiffs included individuals who had retired under Colorado’s public employee retirement system at a time when there was a guaranteed 3.5 percent COLA in place."

Professor Monahan: The Denver District Court's Initial Decision in Justus v. State was Surprising in Light of Colorado Public Pension Case Precedent.

Professor Monahan:

"The (Denver District) court’s ruling is surprising both because the court appeared to break from earlier Colorado decisions that found pension benefits to be contractually protected prior to retirement and because the change could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis."

(My comment: In 2011, the Denver District Court held that “plaintiffs unarguably have a contractual right to their pension itself.”  Further, the Denver District Court found that the Colorado PERA pension COLA provisions contain no "durational language" suggesting that a contract has been created, and that a pension provision requires a clear indication that the Legislature has intended to bind itself in a contractual manner.

This 2011 Denver District Court finding begs the question, if the test of enforceability of a statutory pension provision is accompanying durational language or a clear statement of the intent of the Legislature to create a contractual obligation, then how did the Denver District Court go about determining that “plaintiffs unarguably have a contractual right to their pension itself" (i.e., the PERA 'base benefit')?  The Colorado PERA statutes state that qualifying PERA members "shall" receive the PERA "base benefit" at retirement, language that is identical to the language providing the PERA COLA benefit.  PERA statutes setting forth the benefit formula for service retirement state that the service retirement benefit "shall be calculated."  How is this identical language contractual for the PERA "base benefit," yet NOT contractual for the PERA COLA benefit?

How did the Denver District Court reach the conclusion that Colorado PERA "base benefits" are contractual without mentioning the most significant, on-point Colorado public pension case precedent, Bills and McPhail?  What supported this legal conclusion?  Was it simply pulled out of thin air?)

Professor Monahan: Under Colorado's Public Pension Contract Precedent, the Taking of a Colorado PERA Retiree's Contracted COLA Benefit "Would Properly Be Considered Retroactive."

Professor Monahan:

"For example, a participant who worked for the state from 2001 (when the 3.5 percent COLA was enacted) until 2010 (when the COLA was reduced) would have worked for nine years in exchange for the promise of a benefit that increased by 3.5 percent each year during retirement. If that COLA benefit is part of what an employee earns through services rendered, the change at issue in Colorado would properly be considered retroactive."

(My comment: Vickie Johnson, an attorney representing the Adams County Retirement Plan, testifying on the Colorado legislation, SB12-149: “Boards of pension plans have very limited options to improve the funded status of the plan.”  “They could cut benefits, but for incoming employees . . . employees that haven’t been hired yet.”  “Now, we’ve made clear that any modifications to benefits and age and service requirements shall not affect vested benefits already accrued.  So, it won’t affect benefits that are already earned or benefits of retired members.”  “When an employee begins working for a government entity that offers a pension, and the employee contributes to that benefit, the benefit offered to the employee is considered to be a contract right governed by the United States Constitution.”  “As I said, in Subsection 3, we make clear in the proposed legislation that vested benefits already accrued, including the vested benefits of retirees, are not going to be touched.”)

Professor Monahan:

"In October 2012, the Colorado Court of Appeals reversed the trial court, finding that plaintiffs did have a contractual right to their COLAs but remanding the case for further consideration of whether the impairment of plaintiffs’ contract rights was nevertheless permissible because it was reasonable and necessary to serve an important public purpose."

"The case is currently pending before the Colorado Supreme Court."

Professor Monahan on Florida's recent COLA-taking litigation:

"In addition, the (Florida) plan was amended to eliminate the COLA for years of service earned after the date of amendment."

(My comment: Note that the proposed change to the public pension COLA benefit in Florida was to be implemented on a PROSPECTIVE basis.)

Professor Monahan:

"After finding that a contract existed that included the right to have a noncontributory plan and unchanged COLAs, the (Florida) trial court found it easy to conclude that the 2011 legislation was a substantial contract impairment that was not justified by an important public purpose."

Professor Monahan:

"In addition, the court noted that the plan was operating 'well above the 80% funding ratio recommended by experts' and was regarded as one of the healthiest public pension funds in the United States."

(My comment: As we have seen, in spite of the fact that public pension plans are considered to be "well-funded" at an 80 percent actuarial funded ratio, and the fact that the Colorado PERA Board of Trustees has sought to cap funding of the PERA trust funds at a 90 percent funded ratio in the past, the Colorado General Assembly, in SB10-001, proposes to continue taking contracted COLA benefits from Colorado PERA retirees until an absurd 100 percent funding ratio is achieved.  The lobbyists hired by Colorado PERA-affiliated employers became quite greedy in 2010.)

Professor Monahan:

"Although the state of Florida claimed to be facing a budget shortfall, the court noted that the legislature’s appropriations for 2011–12 left more than $1 billion in general revenue unspent for the year.  The court further explained that a significant budget shortfall is insufficient to justify the changes, given that 'other reasonable alternatives existed' to preserve the contract.  As the court explained, 'All indications are that the Florida Legislature chose to effectuate the challenged provisions of Senate Bill 2100 in order to make funds available for other purposes.'”

(My comment: Colorado is the 15th wealthiest state in the nation.  The Colorado General Assembly has allocated $700 million for local government legacy pension obligations that ARE NOT the contractual obligation of the State of Colorado.  The General Assembly has done this while ignoring its own Colorado PERA pension debts.  The Colorado General Assembly has made numerous $100 million dollar grants of discretionary property tax relief.  The State of Colorado can afford to pay its PERA pension debts.)

Professor Monahan:

"The state appealed the decision to the Florida Supreme Court, which overruled the trial court and reiterated its prior holding that the statutory language protected only accrued benefits.  Because the changes at issue were prospective in nature and did not impair what an employee had already earned, the court found the changes permissible."

(My comment: The Florida Supreme Court agreed that PROSPECTIVE changes to a COLA benefit are legal, RETROACTIVE takings of accrued public pension COLA benefits are unconstitutional.)

Professor Monahan on Rhode Island's Attempt to Take Contracted COLA Benefits:

"Before deciding the contractual issue, the court importantly pointed out that pursuant to a prior decision of the Rhode Island Supreme Court, no separate analysis applies to a base pension benefit versus a COLA.  Rather, the court explained, a 'COLA and a pension are one and the same.'”

(My comment: A COLA is simply a means of providing a contracted public pension benefit.  A public pension plan sponsor could just as easily offer a larger monthly annuity payment with no COLA escalator provision.)

Professor Monahan:

"In analyzing the contractual issue, the court found that while the statute is not explicit about the existence of a contract, the facts and circumstances supported the finding of a contract.  The court explained that the state offered to provide the benefits in return for service and that acceptance was supported by employees’ adequate consideration, creating an implied contract under standard contract theory.  The court did note that while these employees have only partially performed (because they have not yet retired), it found their performance to be 'substantial,' thereby preventing the state from revoking its offer."

Professor Monahan:

"The trial court judge who issued this ruling is the same judge who has been assigned to hear the legal challenges to Rhode Island’s major pension reform passed in 2011.  There have been no rulings yet in that case, which the judge most recently ordered to mediation."

From Professor Monahan's paper, "Public Pension Reform: The Legal Framework":

“This Article has argued that pension benefits that have already been earned through services rendered to the state should be protected against impairment, but that it is hard to find legal justification for protecting the rate of future benefit accruals.”

Link to Monahan law article:

http://www.law.umn.edu/facultyprofiles/monahana.html)

On page 28 of this paper Professor Monahan notes that public pension retirees in Colorado have a “contract, at some time prior to eligibility for retirement,” but that the point in time at which this contractual right arises is “unclear” based on the case law.  Further, Monahan writes “Colorado courts have held that prior to eligibility to retire, plan changes can be made if the changes ‘strengthen or better’ the retirement plan, or if they are actuarially necessary.”

Professor Monahan in the article “Statutes as Contracts? The ‘California Rule’ and Its Impact on Public Pension Reform,” (Iowa Law Review article):

“In the Colorado case, the district court was considering whether the state was permitted, as part of a broad pension reform effort, to reduce the cost-of-living adjustments (“COLAs”) previously granted to retirees.  The plaintiffs included individuals who had retired under Colorado’s public employee retirement system at a time when there was a guaranteed 3.5% COLA in place.  This COLA had been in place since 2001.  Under the California Rule, it is clear that COLA reductions could not be made once a participant entered the system.  However, the Colorado District Court held that the statute granting COLAs contained no clear and unambiguous evidence that retirees were entitled to an unchanged COLA for the duration of their benefits.  In further support of its conclusion, the court highlighted the fact that COLAs had previously been changed (though not to a retiree’s detriment), and therefore those in the system could have no reasonable expectation of an unchanged COLA.”

(My comment: Note that Professor Monahan points out that prior “changes” made to the PERA COLA did not harm PERA retirees . . . therefore those retirees could not be expected to contest such “improvements” to their contracted “automatic” PERA COLA benefit.)

Professor Monahan expresses her surprise at the Denver District Court ruling:

“The court’s ruling is surprising both because the court broke from the previously endorsed California Rule, under which it is clear that detrimental changes to the benefits of current employees are only permissible where they are offset with comparable new advantages, and because the change at issue is one that could be characterized as a retroactive change to benefits, which is the type of change that invites the most scrutiny under a contract clause analysis.”

(My opinion: Here Professor Monahan states her “surprise” that the Denver District Court would render a decision that entirely disregards on-point, established Colorado public pension case law . . . a decision that represents an extreme departure from public pension case law in Colorado.  Further, Monahan notes that the COLA taking was a “retroactive” diminution of fully-vested PERA retiree COLA benefits, and that such a taking “invites the most scrutiny under contract clause analysis.”)

Professor Monahan at the February 22, 2013, the Ohio State University Moritz College of Law hosted a "Roundtable on Public Pension Reform."

http://moritzlaw.osu.edu/programs/capital-markets/roundtable-on-public-pension-reform-video-archive/

Professor Monahan: Taking accrued retiree public pension benefits is the pension "reform" with the greatest legal risk.  The U.S. Supreme Court tells us that public pension reforms must be the "least drastic" alternative in order to meet constitutional muster.  Most public pension administrators consider automatic pension COLAs to be an accrued benefit.

Professor Monahan:

"I'm not aware of any case, where a court has said that once a participant has retired, and completed all of the necessary ingredients to receive a pension that that pension is not contractual."

"Even in some liberal states, once you've retired, you have a vested, contractual right to the benefit."

Professor Monahan on the relative legal risk of legislative enactment of various reforms to public pension systems:

"I think it's fair to generalize that there is a sort of risk hierarchy here."

"So, I'm going to start with the most risky and go down to the least."

Pension Changes Impacting:

Public Pension Retiree Accrued Benefits

" . . . benefits being paid to retirees are the riskiest thing to touch." "The idea is that they have completed their side of the bargain, and so any changes to those individuals usually get the highest level of scrutiny."

Active Pension Member Accrued Benefits

"Next, is touching accrued benefits for people who haven't retired.  So, they're still working, but you're reducing what they've already earned to date.  That's also pretty risky.  Basically, the analogy here is to salary.  You can't retroactively reduce someone's salary.  The court's going to easily imply a contract here, for the same reasons reducing accrued benefits are risky."

Future Benefit Accruals

"Future benefit accruals in most states, should be less risky."

(My comment: Note that the Colorado General Assembly adopted prospective changes to future benefit accruals of certain Colorado county government pension systems in 2012 [SB12-149]. The Colorado Legislature adopted these prospective pension reforms, honoring the accrued pension benefits of thousands of Colorado county government retirees two years after having retroactively seized accrued contracted public pension benefits of Colorado PERA retirees.  In 2010, most members of the Colorado Legislature were unaware of Monahan’s “hierarchy of legal risk” of various public pension reform options.  This lack of knowledge is attributable to the fact that, in 2009 and 2010, the Colorado Legislature permitted self-interested outside parties to develop public pension policy for the State of Colorado [through lobbyists].)

New Hires

"New hires are easy."

Professor Monahan on public pension COLAs:

"I think that most people in the pension world, when they think of COLAs, think of it as part of the participant's accrued benefit."

(My comment: "Automatic" public pension COLA benefits are fixed, contractual obligations of public pension plan sponsors.  "Ad Hoc" public pension COLA benefits may be adjusted by pension plan sponsors as needed.  Many critics of public pension systems in the U.S. are attempting to confuse the two types of COLAs to support of their efforts to break pension COLA contracts.)

Professor Monahan on the "Reasonable and Necessary" standard to break public pension contracts:

"That sounds like an easy test."  "It's not."  "The U.S. Supreme Court tells us that it has to be the least drastic way of achieving the policy goal."

Professor Monahan:

"Colorado is a closely watched case that's been going on for awhile now.  Colorado reduced COLAs.  Most recent ruling there is the Appellate Court which just ruled that there is a contractual right to COLAs."

Colorado PERA active and retired members, support public pension contractual rights in Colorado.  Read your Monahan and contribute at saveperacola.com!  "Friend" Save Pera Cola on Facebook!